This week I worked with a couple in their late 60's. It started out as a regular planning session (that is what I do) and we quickly narrowed in on their particular needs. They had saved up a substantial amount of money for their own retirement needs, but there were two things they still wanted to accomplish. They wanted to plan for the possibility of nursing home care and they wanted to know if they had enough money to save for their grandchild's potential educational needs, while still leaving them enough to live comfortably on.
Both of these are common needs for clients in retirement. The long term care needs are important because the cost of nursing homes is growing at a very high rate. It can cost upwards of $90,000 per year for private nursing homes. The cost of long term care can easily make inheritance by the next generation a no-go. This is a very important point. One of the most direct ways to tackle this issue is with GOOD long term care insurance. "Good" is in caps because there are many subpar long term care insurances out there. They may be cheaper than the good ones, but they also don't tell you that they may raise their rates in the future, so what seems like a good deal isn't one. We discussed three main options (which I may talk about in a future post )and they are deciding which best fits there situation. I will be meeting them again in 2 weeks to discuss again with them.
I provided 2 options for funding the grandchild's education and they immediately chose 1. The grandparents decided to fund a whole life policy on the child. This is one common method (the other is a 529 plan). There are advantages and disadvantages to both, but appealed the most was the certainty of the 10 year whole life policy. Cash values in whole life do not go down. After all, the policy is a contract. So when we provided an illustration that showed how monthly payments for 10 years would grow to provide for substantial educational needs, and still leave money left over to help the grandchild afford a down payment on a first home, their mind was pretty well made up.
They knew their kids (the grandchild's parents) could still start the 529 plan, and they liked the idea of having multiple funding sources for the grandchild's education. Finally, they liked that they could also likely help the grandchild put down a down payment on a house, an option they never had as young adults. They knew the benefits of home ownership, including: building equity, lower payments than renting, and lower rates for a larger down payment.
I will probably fill you in on the long term care option when I meed with the clients again.
Good night and good luck.
The title of this blog is kind of audacious. $10 Million? Really? I know for some people it seems way off. But the whole concept of this blog is to develop a path for someone that is 30 years old, and without much in the way of assets, to find a way to $10 million dollars by age 65.
I chose $10 million because thanks to inflation, $1 million probably won't be enough to live well in 35 years. I also think it is still an achievable number for most middle class individuals. Working backwards, we can arrive at weekly savings goals, and annual returns on our saved money/assets.
With that said, let's begin calculating what it will take. Assume we can begin saving $100 every week. (This amount might seem like a stretch, but the whole point of this blog down the road is to evaluate ways to bring in this money).
We begin saving $100 per week, and every year thereafter, we increase that weekly amount by $50. So in year 2 we save $150 per week. In year 3 we save $200. In year 4 we save $250. And so on and so on. You may be asking how we will afford to raise this amount every year, but the answer will be through passive income streams. We will spend many many blog posts discussing these. If you work along with the blog and add a passive income source every 6 months, you will be able to increase this weekly savings number every year.
So $100 per week the first week, and then increasing $50 a week every year after. You need to make annual returns of 11.5% to have $10,456,620 at age 65. I think many financial "gurus" overestimate projected annual returns on stocks going forward. People forget that: 1) the U.S. benefited from the destruction of Europe's industrial capacity during WW2, leaving us the only game in town; 2) the fall of the Soviet Union in the early 1990's left us as the lone super power for 2 decades; and 3) the Federal Reserve has been manipulating the economy through monetary policy since the 1980s. Our stock returns since WW2 may very well be higher than we should expect going forward.
So for that reason, lets assume stocks only average 8-10% going forward. Just to show you the power of compounding interest, can you guess what our savings total comes to if our annual returns only average 9%, rather than 11.5%? $6.6 million... So a 2.5% difference in annual returns can mean the difference of almost $4 million dollars ($10.456,620 - $6,630,007 = $3,826,613) when we hit age 65.
So how are we going to try and reach 11.5%? Patience grasshopper. There are ways to try and increase equity returns. We will discuss these strategies going forward. For now just know that we need to start thinking of ways to save $100 per week from our income.
Until next time. Good night and good luck.
Founder of a fee-only, ethical investing firm. We specialize in assisting millennials tired of traditional financial advisers.